On Sept. 18, 2019, California Governor Gavin Newsom signed bill AB5 into law that will make it more difficult for companies to classify people who work for them as independent contractors with the new ABC test.
Under the ABC Test, a worker is presumed to be an employee unless the employer can show that all three of the following “prongs” or conditions are satisfied:
- the worker is free from the control and direction of the hiring entity in connection with the performance of the work,
- the worker performs work that is outside the usual course of the hiring entity’s business, and
- the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Hours before the law was to take effect Jan. 2020, a federal judge issued a temporary restraining order blocking the state from enforcing it upon truck drivers.
Days later, a hearing on the trucking group’s request for a preliminary injunction was set and the plaintiffs can argue that they have carried their burden for purposes of emergency relief to show:
- that they are likely to succeed on the merits,
- likely to suffer irreparable harm in the absence of relief,
- that the balance of equities tips in their favor, and
- that their requested relief is in the public interest.
Fast forward more than a year to May 2021 and a three-judge panel of the Ninth Circuit Court of Appeals has struck down a lower court’s injunction against the application of the California’s AB5 contractor law and its ABC test to trucking.
The California Trucking Association has 14 days to seek rehearing, which should be expected on or before May 12. If this request is denied, or if the rehearing fails to change the view of the court, it will be just seven days before the injunction lifts.
The United States Supreme Court on November 15th invited the Solicitor General to file a brief expressing the federal government’s views on whether the Supreme Court should hear California Trucking Association’s suit claiming federal law preempts California’s AB 5 for the trucking industry.
The injunction should remain in place while SCOTUS awaits the Solicitor General’s brief.
More recently, the Supreme Court of the United States declined to hear the first AB5 case from carrier Cal Cartage on October 4, 2021, leaving in place a split in authority regarding whether states can change the rules regarding how truckers are treated.
The next step will be CTA’s case at the U.S. Supreme Court that relies on slightly different arguments and factual statements than Cal Cartage case.
How AB5 affects the trucking industry in California and nearby states
To describe the situation, let us look at port truckers in California. There are around 13,000 truckers regularly serving the ports of Los Angeles and Long Beach. However, only a few hundred are classified as employees.
The others are owner-operators who traditionally:
- lease their rigs from trucking companies,
- drive under those companies’ permits, and
- rely on them for work assignments.
These owner-operators are paid by the load and get a 1099 independent contractor tax form at the end of the year.
While this is a popular business model, there are some who abuse this relationship. For example, to meet the state’s strict clean-air regulations, trucking companies forced drivers to purchase new trucks beginning in 2008 rather than assume the expense. Many drivers, who also pay for diesel fuel, repairs, and insurance, fell into debt as they worked overtime to pay off huge loans for their trucks. If they missed payments, some companies reclaimed the trucks and fired the drivers, seizing their equity.
The new AB5 law would basically require carriers to hire the independent contractors and pay them health insurance and other employee benefits.
Interested In New Hire Services?
It is not just California carriers that must deal with the law’s ABC test B prong, which requires carriers and contractors to be in essentially separate areas of business. Carriers across the state’s border that deliver inside California will be required to meet this B prong as well.
Today, the carriers that have been taking the “wait and see” approach on the law and the court’s process are now facing a near-term reality that the independent contractor system might not be possible and will have to face an increase in costs to hire the drivers.
Other carriers have been cutting ties with California as the cost of doing business in the state are greater than the reward and pull out of any California operations to shield themselves from the impact of the AB5 law.
CNS can help fleets with our new driver hire program
If AB5 does not include a trucking exemption, then there will be a flood of independent carriers going through a new hire process. There are a lot of rules around the hiring process, not limited to drug testing, CDL Clearinghouse queries, compliant DQ file process, and more.
To get these drivers on the road fast, Compliance Navigation Specialists has developed a new hire program that will streamline your hiring process.
Our New Hire service includes the following:
- Tailor Drive Qualification file (paper) or Online Tailored Driver Qualification File (Paperless)
- Initial Audit
- Previous employer inquires completed on your behalf
- Initial Motor Vehicle Report (MVR)
- Pre-Screening program report (PSP)
- Online Record Retention
- Pre-employment drug screening verification
- Doctor on medical card verification
- FMCSA clearinghouse full query
- Driver Qualification
- New Hire phone support
- and more
Accuracy, organization and diligence are crucial to keeping your files in order and ready for an audit at a moment’s notice. Our DQF Management System is completely customizable to your individual needs. The consultants at CNS stay in communication with you regarding document updating, as well as offering comprehensive reports upon request, and reports of routine audits by our own DQF Auditors.
Our driver management and new hire management services will exceed your expectations. You focus on trucking, and let us focus on your driver file management. If you have a fleet of drivers, we assure you that you can’t do this cheaper in-house.
We will ensure that your information is collected, current, and complete. In addition, we will continue to update your files as required, and let you know when an updated piece of information is needed.
Driver File Management
Questions about Driver File Management? Fill out the form to get started
Truckload rates for flatbeds, refrigerated and dry vans are at record highs right now and are expected to remain historically high next year as we ease out of pandemic and online shopping stays at record levels and businesses are stocking back up.
This demand, as well as drivers getting out of the independent contractor mess, has led to a record 59,000 authorities being applied for by new motor carriers in 2020 and this year looks no different as around 51,000 motor carriers have already received carrier authorities.
Avery Vise, FTR’s vice president-trucking, who presented findings during a company webinar last week, said “the applicants were not driver newbies, but company drivers who have gone out on their own or owner-operators that had been working under a lease arrangement with larger carriers but became fully independent either voluntarily or after being cut loose during 2020 when the COVID-19 pandemic shut down much of the nation’s economy.”
While many of these new carriers have driving history, going on your own brings a new set of complications to become successful.
How To Start Off On The Right Foot
To receive your authority, you must have insurance on file. To avoid paying for insurance coverage you do not yet need, talk to your insurer to have it become effective approximately two weeks into the start-up process.
Getting your own operating authority is usually a straightforward process but there are many steps needed before and after you get your authority, which will take 21 days or more to get approved. We can assist you with each step individually or as part of a full compliance program which we will discuss more in a moment.
The following are some if the items you will need to complete:
- Register for a company name
- Obtain a Federal Employer Identification Number (EIN)
- Obtain insurance
- Set up IFTA and mileage tax accounts
- Obtain intrastate authority, if applicable
- Obtain Hazmat permits, if applicable
- File the Unified Carrier Registration (UCR)
- File the IRS Heavy Vehicle Use Tax
- Establishing driver qualification Files, equipment maintenance schedules, and equipment files
- Pass your first annual vehicle safety inspection
When you are ready to start moving freight, cash flow is often a problem because it may take 45 to 60 days before getting paid for your first load. It is best practice for new carriers to have operating capital to sustain your business for up to two months.
As a new entrant, it is required to follow Department of Transportation (DOT) regulations and they will want to see some established records and processes during your New Entrant Safety Audit that will happen within the first 12 months of operation to complete the New Entrant Program.
Motor carriers should not delay responding to the DOT auditor because ignoring their requests—especially the “no contact letter” or “demand letter” for scheduling an audit—could lead to fines of up to $10,000 and/or suspension of their operating authority.
Compliance Navigation Specialists is an industry leading compliance company that will help you stay in compliance and help provide records you will need to keep your commercial insurance rates as low as possible.
Our safety management programs are perfect for combining multiple services and focuses on Proactive Safety Management (PSM), a mindset that will ensure your fleet’s safety and compliance is always in order and ahead of the FMCSA.
Our PSM Motor Carrier Program includes:
- ELD management
- Driver Qualification File Management
- New driver on-boarding
- Driver safety meetings
- CSA score management
- Policies and handbooks
- Vehicle maintenance
- and more
Do you still need commercial trucking insurance?
It never hurts to get a quote and try saving money on your insurance premiums. Give our sister company Norther Insurance Specialists a call anytime to discuss getting a quote.
Before we can get you an estimate, we are going to need some information.